31 May 2016

Moody's: Mauritius's resilient economy and ample liquidity support its Baa1 rating

Mauritius's diversified and resilient economy support its Baa1 rating with a stable outlook in the face of an unfavorable external environment, Moody's Investors Service ("Moody's") said in an annual report published in the past week.

The country has successfully attracted foreign investment, mainly in the financial sector, in part due to its proactive efforts to create a business friendly environment. Its stable political environment and diversified exports are also supportive.

The report, "Credit Analysis -- Government of Mauritius", is now available for Moody's subscribers. The research is an update to the markets and does not constitute a rating action.

"Mauritius's relative economic diversification and wealth, as well as the authorities' proactive economic policy stance have been key supports," said Lucie Villa, Vice President -- Senior Analyst and the report's co-author. "Yet despite Mauritius's undeniable economic success, there are still structural constraints to higher levels of growth, especially related to infrastructure shortcomings, and deficiencies in the labor market, among other areas."

The Indian Ocean island nation's economic outlook remains healthy, and Moody's forecasts real growth for 2016 and 2017 of 3.6% and 3.7%. The announced changes to the Double Taxation Avoidance Agreement ("DTAA") with India will likely only have a modest impact on growth due to the country's sectoral and geographic diversification.

A substantial deterioration of government debt metrics or increased external vulnerabilities would exert downward pressure on the Mauritian government's rating. Conversely, a significant and permanent reduction in Mauritius's vulnerability to external volatility and shocks would put positive pressure on the rating.

Mauritius's complex financial sector constitutes its main source of systemic risk, and while a potential vulnerability, the sector has been the principal source of foreign exchange earnings.

The authorities face the challenge of continuing to foster investment, critical for ensuring Mauritius's macroeconomic stability, and supporting the government's ability to raise funding and consolidate its finances.

Moody's assesses Mauritius's fiscal strength as "Moderate", reflecting a history of high government debt, which stood at 59% of GDP at the end of 2015. Debt affordability is moderately high.

Moody's believes that these metrics are unlikely to change within the coming two years.

The annual Credit Analysis elaborates on Mauritius's credit profile in terms of Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk, which are the four main analytic factors in Moody's Sovereign Bond Rating Methodology.

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